FLK2 · Solicitors Accounts

Interest on client money

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

SA.05 - Interest on Client Money

Rule 7.1 requires the firm to account to clients or third parties for a fair sum of interest on client money held on their behalf, where the rule applies. Client money includes money held as stakeholder on behalf of a third party in relation to the firm's regulated services (Rule 2.1(b)). The interest duty is not limited to the firm's own client; identify on whose behalf the money is held and check any valid different written arrangement under Rule 7.2. Neither using a pooled account nor setting a rate in the firm's policy establishes that nothing further is owed. Conversely, the rule does not specify that every client must receive precisely the bank interest earned on a particular deposit.

Applying a stated policy

Separate the calculation from the legal assessment of fairness. For simple interest, multiply the amount by the annual rate and the fraction of a year. For example, GBP 250,000 at 1.6% annually for six months produces GBP 2,000. That is the result of those inputs, not proof that 1.6% is fair in every market or retainer.

A policy makes the proposed calculation clear and should be explained to the client. It does not override rule 7.1 simply because the firm adopted it. Consider the amount, time held and surrounding circumstances when assessing the outcome. There is no fixed interest rate prescribed by rule 7.

Different agreements and scope

Rule 7.2 allows a different written interest arrangement with the client or third party after sufficient information for informed consent. A bare assertion that the client "agreed" is not enough to establish those safeguards. The written arrangement can provide for no interest, but do not infer such an agreement from silence or from the firm's internal policy.

Within ordinary client-account arrangements, rule 7 does not itself create separate general-account and designated-account entitlement formulas. Check the retainer and any valid different agreement; do not import an old rule just because the account is designated.

Check scope before calculation. Rule 2.2 disapplies rule 7 for client money held outside client account in compliance with its conditions. Rules 9 and 10 also limit which Part 2 rules apply to joint accounts and clients' own accounts; this does not determine any separate trust or contractual obligations. "Client money always means rule 7 applies" is therefore too broad.

Keep interest entitlement separate from permission to retain or withdraw the underlying money. A residual-balance procedure does not supply an interest threshold or cancel the duty to return money when there is no proper reason to hold it.

Source: SRA Accounts Rules, rules 2, 7, 9 and 10.

Try a real SQE1 question

This question is taken from the bank. Answer it to see the worked reasoning and the tutor. You do not need to sign up to try it.

A woman is the treasurer of a small amateur football club. Members pay £20 each month in cash. Under the club rules she accepted on becoming treasurer, she must bank the subscriptions into the club's dedicated account within seven days. One month she receives £200 in subscriptions and spends the cash on her own gas bill that same day. She intends to replace the money from her wages before anyone notices, and pays an equivalent £200 into the club account two weeks later. Which statement best explains how section 5(3) of the Theft Act 1968 applies to the subscriptions when she pays the gas bill?

Practise at the real standard

Strong on this topic? SQE1 tests 137 of them, and 58% did not pass in July 2026. See where you stand across all of them.

Complete includes

  • ✓An AI tutor on every question. The tutor already knows the correct answer
  • ✓5 full timed mock papers, plus unlimited drilling — no daily cap
  • ✓The whole 2,263-question bank, with worked answers and references, all 137 topics
  • ✓Your weak-spot map: exactly where you’re losing marks
See what it costs →or try 25 questions free

One payment, nothing recurring. The 25-question diagnostic is free with no card.

More Solicitors Accounts topics

See all topics in the FLK2 guide or the full SQE1 syllabus.

Independent SQE1 revision notes for study — not legal advice; check primary sources before relying on any point. Exam rules are set by the SRA; see the official SQE site.

Interest on client money — SQE1 revision notes (FLK2) | Lawdojo